Phillips curve
In the late 1950s, the British economist A.W. Phillips demonstrated an inverse statistical association between annual changes in average wage rates andthe rate of unemployment . When the annual wage growth rates and unemployment rates for Great Britain for each of the years from 1861 to 1957 were plotted as points on a two-dimensional graph,they rather neatly approximated a shallow hyperbola-shaped curve convex to the origin of the graph. That is, in years when unemployment rates were low, averagemoney wages tended to grow rapidly; but in years when unemployment rates were high, average money wages tended to grow little or even to decline. Other economists soon repeated Phillips's procedures with similardata from a number ofother industrialized countries and mostly found similar statistical relationships.
At the time, many Keynesian economists reasoned from this finding as follows: Because unemployment rates and wage increase rates are inversely related, the traditional government goals of maintaining both low inflation and low unemployment would seem to be inconsistent. Because wages are such a large share of the costs of production, rapid increases in average wages are bound to push up the general price level.
